Clairmont v. State Bank of Burleigh County Trust Co.

• Decision Date: 22 July 1980
• Docket Number: No. 9752,9752
• Citation: Clairmont v. State Bank of Burleigh County Trust Co., 295 N.W.2d 154 (N.D. 1980)
• Parties: Dean CLAIRMONT, d.b.a. Classic Automobiles of Bismarck, Ltd., and Classic Automobiles of Bismarck, Ltd., Plaintiffs and Appellants, v. STATE BANK OF BURLEIGH COUNTY TRUST COMPANY, Defendant, Third-Party Plaintiff and Appellee, v. John IGOE, Third-Party Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 154

295 N.W.2d 154

Dean CLAIRMONT, d.b.a. Classic Automobiles of Bismarck, Ltd., and Classic Automobiles of Bismarck, Ltd., Plaintiffs and Appellants, v. STATE BANK OF BURLEIGH COUNTY TRUST COMPANY, Defendant, Third-Party Plaintiff and Appellee, v. John IGOE, Third-Party Defendant and Appellee.

Civ. No. 9752.

Supreme Court of North Dakota.

July 22, 1980.

Lundberg, Conmy, Nodland, Rosenberg, Lucas & Schulz, Bismarck, for plaintiffs and appellants; argued by Patrick A. Conmy, Bismarck.

Wheeler, Wolf, Wefald, Peterson & McDonald, Bismarck, for defendant, third-party plaintiff and appellee; argued by David L. Peterson, Bismarck.

SAND, Justice.

Dean Clairmont, d. b. a. Classic Automobiles of Bismarck, Ltd., appealed from the judgment of the Burleigh County district court which dismissed his complaint against the State Bank of Burleigh County Trust Co. for tortious conversion of personal property and business libel.

During the summer of 1978 Clairmont organized Classic Automobiles of Bismarck, Ltd., for the purpose of buying and selling "investment automobiles," which by their rarity or classic nature will likely increase in value rather than depreciate. Clairmont opened a checking account in the corporate name at the State Bank of Burleigh County Trust Co. and personally executed a printed form signature card.

Thereafter, Clairmont agreed to accept a custom patterned Excalibur automobile "on consignment" from one Dr. Neville Jones and his son, Barrie Jones. Clairmont was to arrange a sale of the Excalibur through his business and, in return, retain a $500 commission from the purchase money.

Clairmont soon thereafter contacted John Igoe, who was willing to purchase the Excalibur for $25,000 provided he could secure financing. Clairmont then accompanied Igoe to the State Bank of Burleigh County where Igoe applied for a loan with which to purchase the automobile. Igoe proposed to secure the $25,000 note with eight automobiles, including the Excalibur and a 1973 Jaguar. Because Igoe at that time did not have an account at the State Bank of Burleigh County, the procedure which was to be followed if the loan was approved was that the bank would deposit the $25,000 loan proceeds directly into the Classic Automobiles of Bismarck, Ltd., account. Clairmont would then issue a check to Barrie Jones for the Excalibur, the title to the car would be delivered to the bank, and Igoe would receive the car. This procedure was known and agreed to by all parties, including the bank through its loan officer, Timothy Hennessy. The loan was subsequently approved by the State Bank of Burleigh County.

On 1 Aug. 1978 a promissory note for $25,000 and a financing statement giving the State Bank of Burleigh County a security interest in eight motor vehicles was signed by John Igoe and his wife. The following day, 2 Aug. 1978, the proceeds from the Igoe loan were deposited in the Classic Automobiles of Bismarck, Ltd., account by the bank, and loan officer Hennessy called Clairmont and told him that the money had been deposited and that Clairmont could "go ahead and pay for the car." Clairmont on the same day, 2 Aug. 1978, gave Barrie Jones a check, dated 26 July 1978, in the amount of $24,500 in payment for the Excalibur. Because the loan proceeds were then deposited in Clairmont's account, the transaction was proceeding smoothly as planned.

On 3 Aug. 1978, James Igoe, John's brother, notified the State Bank of Burleigh County that John was deeply in debt to James, and that any financial statement given to the bank by John was false and fraudulent. Upon receipt of this information from James Igoe the bank contacted the credit union which corroborated that information but otherwise the truth of the matter was not thoroughly discussed in the record. The State Bank of Burleigh County then "rescinded" the Igoe loan, and withdrew the $25,000 proceeds thereof from the account of Clairmont. When Clairmont's check to Barrie Jones was presented at the bank it was marked "refer to maker" and returned unpaid. The bank claims it attempted to contact Clairmont immediately upon learning of the situation but was unable to reach him by telephone. By the time Clairmont was contacted the bank had already made the reversal entry. It was not clear from the record exactly when Clairmont was notified of the bank's "reversing order," but he became aware of his dilemma within a few days subsequent to the bank's actions.

Sometime later in August of 1978, Barrie Jones, in the company of his father and their attorney, re-presented the check for payment at the State Bank of Burleigh County, and a notation "not sufficient funds" was endorsed upon the check by the bank. Dr. Neville Jones and Barrie Jones initiated a lawsuit against Clairmont and Classic Automobiles of Bismarck, Ltd., for damages incurred by them in the aborted sale of the Excalibur. However, this action was later dismissed by the Burleigh County district court and is not pending at this time.

On 13 Sept. 1978 Clairmont commenced the present action against the State Bank of Burleigh County. His complaint alleged that the unauthorized removal by the bank of the $25,000 Igoe loan proceeds from Clairmont's account constituted an intentional business libel and a tortious conversion of personal property. Clairmont sought compensatory damages in a total amount of $35,000 and punitive damages in a total amount of $105,000 on the two claims, along with expenses incurred in pursuit of his property. The case was tried before the Burleigh County district court on 25 Sept. 1979.

On 2 Oct. 1979, the district court issued a memorandum opinion concluding that Clairmont's claim against the bank be dismissed. The district court determined that the facts of the case failed to establish that any business libel or damages to business reputation had taken place. Further, the court concluded that the $25,000 deposit to Clairmont's account represented a trust on behalf of Igoe and that therefore Clairmont was never the owner of the funds. Consequently, the district court determined that no conversion took place. Judgment was entered against Clairmont consistent with the district court's memorandum opinion, and Clairmont appealed to this court from the judgment.

In Christensen v. Farmers State Bank of Richardton, 157 N.W.2d 352 (N.D.1968), the North Dakota Supreme Court defined conversion as follows:

"Conversion consists of a positive tortious act, a tortious detention of personal property from the owner, or its destruction, or a wrongful exercise of dominion over the property inconsistent with, or in defiance of, the rights of the owner. (Citations omitted.) The gist of a conversion is not in acquiring the complainant's property, but in wrongfully depriving him of it, whether temporarily or permanently, and it is of little relevance that the converter received no benefit from such deprivation. (Citations omitted.)" 157 N.W.2d at 357.

See also, Dairy Department v. Harvey Cheese, Inc., 278 N.W.2d 137 (N.D.1979); and Brunswick Corporation v. Haerter, 182 N.W.2d 852 (N.D.1971). In the instant case, Clairmont alleged that the bank's withdrawal of the Igoe loan proceeds from his account constituted an intentional conversion of his personal property.

The relationship between a bank and its depositors in this state has undergone some changes, and since 1914 has come almost full circle. In Shuman v. Citizens' State Bank of Rugby, 27 N.D. 599, 147 N.W. 388 (1914), this Court recognized the rule of law that a bank may apply general deposit money to the payment of an antecedent debt of a depositor even though the money is in fact trust money, provided the bank is without knowledge of the trust and the application to the debt is consented to by the trustees or depositor.

Subsequent to the Shuman decision, the North Dakota Legislature, by Ch. 139 of the 1923 Session Laws, enacted what is now § 6-03-67, NDCC. This section in essence states that except for § 30.1-31-13, NDCC, it is unlawful for any banking institution to charge any claim against the deposit with the association or to appropriate a deposit or any part thereof to the payment of a debt to the association without legal process or the specific consent of the depositor.

Section 6-03-67, NDCC, was construed in First International Bank v. Brehmer, 56 N.D. 81, 215 N.W. 918 (1927), to mean that a bank could not under the garnishment statutes of the state summon or charge itself as a garnishee in such action. Later, this Court, in Biby v. Union National Bank of Minot, 162 N.W.2d 379 (N.D.1968), held in effect that the signature card constituted a contract between the depositor and the bank and that the provisions of the signature card controlled even though the part authorizing withdrawal, etc., is in smaller print than the other...